Datatec overcomes hurdles to report strong growth

By Iain Scott, ITWeb group consulting editor

Johannesburg, 25 May 2001

Networking and IT services group Datatec has reported strong growth for its latest financial year, despite the disruptions of an insider trading probe, extensive restructuring and staff cuts.

Revenue for the year to 31 March 2001 increased to R20.16 billion from R11.52 billion the previous year. The figures for the 1999/2000 financial year have been restated to consolidate the results of US subsidiary Westcon, in accordance with the US`s Securities Exchange Commission rules.

Operating profit before depreciation and finance costs increased to R1.06 billion (2000: R708 million), while profit after tax rose to R1.02 billion (R388 million).

Headline earnings per share, excluding restructuring costs, were boosted to 376.2c (325.8c). Including restructuring costs, headline earnings increased to 325.2c (299.9c) a share.

The group did not experience a smooth ride during the year. It was the subject of an insider trading investigation which this week saw chairman Jens Montanana and financial director Robin Rindel pay R1 million to the Financial Services Board in a full and final settlement.

The group also engaged in a restructuring exercise and laid off 20% of its worldwide staff, reducing the headcount to 4 000.

Montanana says he is pleased with the financial results.

"If the effects of last year`s gain and this year`s loss attributable to Datatec`s 23% non-core stake in Siltek were excluded from the results, the group`s headline earnings per share would have grown 24% from 314c to 387c," he adds.

"This robust performance more accurately reflects the real achievement this year of the group`s core underlying operations."

The group incurred restructuring costs of R82 million and expensed a further R92 million to exit certain non-core businesses during the year. The bulk of the costs - R137 million - were incurred in Logical.

The division underwent an extensive restructuring programme in Australia, France, Switzerland, SA, the US and the UK, with staff being cut by 30%.

Montanana says while the restructuring programme had a significant effect on the current year`s profitability (Logical reported a trading margin drop from 6.9% to 4.2%), the foundation has been laid for solid growth in profitability.

Restructuring at Logical has been completed and Montanana says he does not expect any further costs in this regard.

"This process entailed the integration of over 20 disparate businesses in 10 countries to create a unified international group built around higher margin service competences and real client needs," he says.

Montanana says the group is proceeding with plans to list Westcon in the US. The group announced in March that it had postponed the initial public offering as a result of weak market conditions.

The Datatec share price was up 70c at R18.40 on the JSE by midmorning today.